New Jersey is the latest front in a battle by the government of Denmark to recoup $2.1 billion it allegedly lost to a tax fraud scheme perpetrated by retirement funds and their managers.

By Charles Toutant | June 18, 2018

Credit: Eyeidea Inc.

New Jersey is the latest front in a battle by the government of Denmark to recoup $2.1 billion it allegedly lost to a tax fraud scheme perpetrated by retirement funds and their managers.

Denmark’s taxing authority, SKAT, has filed 40 suits in the District of New Jersey, and another 100 or more in courts across the nation since early May, to recover funds it claims to have paid out on fraudulent tax refund applications. The suits claim administrators of pension, profit-sharing and stock bonus plans falsely claimed to own stock in Danish companies and submitted fraudulent documentation to SKAT for refunds of taxes they claim were withheld on dividends from the alleged stocks.

The alleged payouts began in 2012 and were discovered in August 2015. Denmark imposes a 27 percent tax on dividends, but provides refunds to overseas shareholders who paid tax on the dividend in their own nations, the suits said.

The Southern District of New York has seen 50 suits lodged by SKAT against retirement funds. Kentucky has seen 15; Massachusetts, 11; Connecticut, 7; Utah, 6; and Florida, 2.

The suits bring counts for fraud, aiding and abetting, unjust enrichment, and negligent misrepresentation, and seek compensatory and punitive damages, and legal fees and costs.

SKAT says it has determined that 300 claimants participated in the fraudulent scheme, of which 277 were in the United States, according to court documents. SKAT has filed other suits in Great Britain, Canada, Malaysia and Luxembourg, it said in court documents.

Complaints filed in the New Jersey cases give little information about the defendants. Many of the New Jersey cases, including suits naming those three, list an “authorized representative” as a co-defendant. A co-defendant named Matthew Tucci is named in 27 of the New Jersey cases. Court documents indicate Tucci “signed power of attorney documents as the authorized representative for at least 27 of the 277 U.S. entities that pretended to own shares in Danish companies,” and that he “fraudulently requested tax refunds from SKAT” on behalf of those parties.

Media reports said the U.S. pension funds were customers of a now-closed British hedge fund, Solo Capital Partners, owned by a man described in those reports as the central suspect in the case, British businessman Sanjay Shah. He has denied any wrongdoing.

Eric Blumenfeld and Jennifer Suh of Hughes Hubbard represent SKAT in New Jersey. Suh declined to comment on the litigation.

John Hanamirian of Moorestown said he represents the defendants in 91 of the cases around the country, including Tucci. He said his clients owned Danish stocks in a “complex investment structure” along with others who are not named as parties to the litigation. Hanamirian said he does not know what role, if any, Shah played in the investments, but added that the investment vehicles his clients participated in are completely legal, and that the plaintiffs’ accusations were false.

The first pretrial hearing in the Southern District of New York SKAT litigation is set for June 25 before Judge Lewis Kaplan, according to Hanamirian. Given that criminal and civil investigations are still underway in Denmark in connection with the alleged fraud, he may seek a stay of the civil litigation in the United States, he said, noting that he thinks the U.S. cases were brought to help Denmark flesh out the unknown aspects of the case.

“I think it’s a discovery mission, but I think it’s enormously heavy-handed, almost like an economic waterboarding,” Hanamirian said.

“It’s kind of lawsuit musical chairs—whoever is left standing is a bad guy. Is that the way we conduct discovery on a national claim? I don’t think so,” Hanamirian said.